Joint Ownership Housing in Urban China: A Property Inalienability Perspective

This paper analyzes joint ownership housing (JOH), a new type of low-income housing in China, from a property inalienability perspective. JOH policy that was recently promulgated by the Beijing City shows that local government is really a passive owner in JOH, contradicting a common argument that JOH can realize asset growth for government equity investment. In this sense, JOH is a policy tool that can continuously adjust property inalienability. In JOH, the government maximizes two externalities from property inalienability, namely externality on the homeowner’s production and externality of his/her windfall gain on the society, while the homeowner maximizes his/her financial gains. Nash equilibrium determines optimal equity position of the government and optimal exit timing by the homeowner. Numerical simulation shows that homeowner’s behavior is very sensitive to how housing price changes over time. Small government equity position can easily yield corner solutions in which the homeowner immediately sells the property after the first year. This finding helps to explain why local governments in China often impose a five-year window of inalienability on JOH.